Need advice- down payment for mortgage!- UPDATE post 104!

[bjscheel]

Just want to say good luck, it sounds ideal, hope it works out for you. We bought our house in 2001 and had basically nothing to put down. We would have loved to work with a local bank, but they wanted too much of a down payment. We went through a mortgage broker and got one from a big bank that accepted a very small down payment. We borrowed it from SIL.

I work with real estate at a law office, and we love it when a buyer finances with a local bank instead of the big ones. SO much easier to work with.

 

[DisneyMandC]

Just want to say good luck, it sounds ideal, hope it works out for you. We bought our house in 2001 and had basically nothing to put down. We would have loved to work with a local bank, but they wanted too much of a down payment. We went through a mortgage broker and got one from a big bank that accepted a very small down payment. We borrowed it from SIL.

I work with real estate at a law office, and we love it when a buyer finances with a local bank instead of the big ones. SO much easier to work with.

Thank you! I'm an attorney and am now wishing I knew more about real estate law! Haha

 

[barkley]

when you are crunching all your numbers for what the home will cost on an ongoing basis (excluding upkeep and maintainance) since you've said it's rural I will suggest that you look at 2 factors that could impact your regular expeneces- your sales tax/local taxes and any school bonds you are districted to.

I know you've said you're not have any kiddos but that doesn't exempt you from paying for any bonds or school taxes that have passed/will be starting for whatever district your new home is in. we live right on the boarder (and I mean-ON the boarder, neighbors a few houses down are in another district) of 2 districts. our district has traditionally been much more conservative in spending and as a result we pay a good bit lower than our neighbors on their tax bills due to their districts voted in bonds and some kind of additional tax they are stuck with. same goes w/sales tax-may not seem like a big deal but when you go to buy appliances, a new car, have repairs or improvements done being subjected or exempted from 1/2- a full percent more in taxes adds up over time (with us it's a savings we appreciate when we need to get the traditional rural deliveries like loads of gravel).


if the home is older (and for this issue even semi new homes would apply)-arrange for the inspector to note not only what is in need of repair/replacement, but also (if they are willing) a somewhat rough estimate on the remaining lifespan on things like built in appliances, water heaters, heat pumps, well pumps and such. an experienced inspector can also let you know if those items nearing replacement are up to current code or have been grandfathered into older code-and will require more than just replacement when they finally go out. as an example-our first home had an ancient hot water heater. it in no way met current codes when we purchased the home but b/c it was a 30 year old home it was grandfathered into the old code. had that water heater died we would have had to do extensive and costly structural, electrical and plumbing changes so that a new water heater could have been legally installed. having this information can put you at an advantage in negotiating a purchase price (and it doesn't hurt to ask for the seller to provide a 1 year home warranty w/ one of the companies that have providers in your area).

 

[DisneyMandC]

when you are crunching all your numbers for what the home will cost on an ongoing basis (excluding upkeep and maintainance) since you've said it's rural I will suggest that you look at 2 factors that could impact your regular expeneces- your sales tax/local taxes and any school bonds you are districted to.

I know you've said you're not have any kiddos but that doesn't exempt you from paying for any bonds or school taxes that have passed/will be starting for whatever district your new home is in. we live right on the boarder (and I mean-ON the boarder, neighbors a few houses down are in another district) of 2 districts. our district has traditionally been much more conservative in spending and as a result we pay a good bit lower than our neighbors on their tax bills due to their districts voted in bonds and some kind of additional tax they are stuck with. same goes w/sales tax-may not seem like a big deal but when you go to buy appliances, a new car, have repairs or improvements done being subjected or exempted from 1/2- a full percent more in taxes adds up over time (with us it's a savings we appreciate when we need to get the traditional rural deliveries like loads of gravel).


if the home is older (and for this issue even semi new homes would apply)-arrange for the inspector to note not only what is in need of repair/replacement, but also (if they are willing) a somewhat rough estimate on the remaining lifespan on things like built in appliances, water heaters, heat pumps, well pumps and such. an experienced inspector can also let you know if those items nearing replacement are up to current code or have been grandfathered into older code-and will require more than just replacement when they finally go out. as an example-our first home had an ancient hot water heater. it in no way met current codes when we purchased the home but b/c it was a 30 year old home it was grandfathered into the old code. had that water heater died we would have had to do extensive and costly structural, electrical and plumbing changes so that a new water heater could have been legally installed. having this information can put you at an advantage in negotiating a purchase price (and it doesn't hurt to ask for the seller to provide a 1 year home warranty w/ one of the companies that have providers in your area).

I don't even know what school bonds are haha. Our property taxes pay for schools here, so I'm assuming that must not be the case for where you live? I do know what the property taxes are on this property based on its current county assessment. My mom's home is literally a half a mile through the woods from this home, so we are up to date on everything regarding property taxes and whatnot for the area, thankfully!

Thank you for the advice! I know there have recently been some changes particularly in hot water heaters, so it's funny that you mention that. I will definitely be asking about heat pump because the house was built in 2000, so I'm willing to bet they have either just recently replaced it, or it's on its last leg. In which case I will definitely be negotiating for that! Well pumps are definitely always a concern. Fortunately, since we're familiar with the land here, I know that the well running dry is NOT an issue!

 

[EdgeOfGlory]

I am about to close on a conventional loan at 5% down, going with a local mortgage broker as a first time homebuyer myself. I still don't know who my lender is but we are about three weeks away from closing. I was just assured it was a local bank and not a conglomerate like Bank of America (yuck).

I don't like the idea of PMI but we plan on doing the pay every two weeks (so 13 monthly payments a year vs. 12) and the market is hot in the Boston area so I expect to be up to the 20-22% mark to get rid of PMI in about 3-4 years, assuming it appreciates at the rate I believe it will. I pay an extra $129/mo for the PMI.

I don't think it's awful to put down less than 20% and if you can't swing it then obviously you have no other choice. I floated the idea of FHA loans for awhile until I realized they came with higher interest rates and fees, overall....it just wasn't worth it for the difference of 1.5% down.

The best advice I can give is, don't fall in love with a place as your OP suggests until you have those keys in hand. We had a deal fall through that we were absolutely in love with when we found out the foundation was shifting on a 100+ year old house. You seem smitten with the idea of this house but I'd say, slow down a bit until you know it is absolutely yours. There are parts along the way that can cause issues as well. The one we should ultimately end up with, we had to overbid and then it didn't appraise for that price so we lost closing costs back but at least the seller was willing to come down a few grand, some aren't.

Good luck!

 

[Minnesota!]

Literally bought a house THIS MORNING. WOOT!
Anyway, we have decent credit, has been better, has been a lot worse.
We put down just under 2%. We could have put down more, sure, but did not want to.

As long as the payment is something you can swing with a lower down payment, why not? Even with putting down only 2%, our monthly payment is going down $45.

 

[EdgeOfGlory]

Be careful on the contingencies you are throwing into your initial bid as well. You can definitely turn off a seller because you could be demanding items others simply aren't until an inspection is complete, while another bidder may beat you out because they didn't ask for it if you at or around the same asking price.

On the flipside, my inspector wouldn't make any determination on the remaining life of water heaters, boilers and the like. It's simply too difficult for ANYONE to make such a prediction. A 3-year old water heater could break a few days after you move in and a 20 year old one might last another 10 years, nobody has the foresight to ever figure that out. If say a boiler is older but the seller serviced it because they were selling their place, again, don't be too demanding that it be replaced when the seller tried avoiding this scenario to begin with.

 

[EdgeOfGlory]

I don't think we're at the max for a home. I know I shouldn't compare, but I see couples our age (mid-20s) buying homes in neighborhoods where prices start in the low 300s, and I know they aren't making our income. I realize that's not a good basis for comparison for our own lives, but I feel like if they're getting mortgages for up to that high, I should definitely be able to qualify for the significantly lower amount I'm requesting.

I am getting ready to start a job with the state retirement system, so I will be maxing that out, and DH has retirement as well as stocks through his company. Fortunately, we are not planning to have children, so future education expenses will not be a concern. Yes, I know "anything can happen." No, it's not happening.

That is my biggest concern regarding the less than 20% is the previous market bust. I was in college when that happened so wasn't super educated about it, but I knew enough to know it was from people putting down too little on their homes. I would definitely want us to put down the max amount possible without disrupting our emergency fund,

Maybe I'll just win the lottery and won't have to worry about this! Guess I better buy a ticket first though.

No, you shouldn't compare. There are a ton of variables that go into your pre-approval and income is only just one of those puzzle pieces. Assets, debt to income ratio, etc are all massive factors too. If someone you know makes less than you, they may have gotten a $50,000 gift from Aunt Edna when she died and that was part of it.

Don't worry about the lack of 20% unless you decide to move and upgrade in the next 5-10 years. If you're staying in the house, possibly forever, short term market fluctuations will never impact you to begin with.

 

[supersnoop]

I don't like the idea of PMI but we plan on doing the pay every two weeks (so 13 monthly payments a year vs. 12) and the market is hot in the Boston area so I expect to be up to the 20-22% mark to get rid of PMI in about 3-4 years, assuming it appreciates at the rate I believe it will. I pay an extra $129/mo for the PMI.

Just be aware that PMI rules have changed in the past few years. You won't be able to remove PMI based on an appraisal until 5 years have passed, or you've paid the loan down to 78% of the original appraised value.

And, unless you have really bad credit, you should be able to do a lot better than 5%. Penfed is at 3.75% on their 30-year product and 3.0% on the 5/5 ARM, both with no points.
https://www.penfed.org/30-Year-Fixed-Mortgage/

 

[katibosch]

Our first house, we put down 23%. An odd amount, but it's what we had saved so we threw it all on there.
2nd house, 35%.
3rd house, 20%
We rent right now but are planning on buying again in the Orlando area in a year or so. We plan to pay cash for that house and not finance anything, or possibly in the worst case scenario have at least 80% down.

 

[EdgeOfGlory]

Just be aware that PMI rules have changed in the past few years. You won't be able to remove PMI based on an appraisal until 5 years have passed, or you've paid the loan down to 78% of the original appraised value.

So you're saying, you can't have a second appraised for 78% of the original value PRIOR to five years of ownership?

Gggrrrr, well that sucks....but it is only one more year than I was expecting.

 

[supersnoop]

So you're saying, you can't have a second appraised for 78% of the original value PRIOR to five years of ownership?

Gggrrrr, well that sucks....but it is only one more year than I was expecting.

That's my understanding, but it could vary by the type of loan. I know FHA loans are more strict. Essentially, you can use appreciation to justify the loan-to-value ratio for at least five years.

 

[DisneyMandC]

I am about to close on a conventional loan at 5% down, going with a local mortgage broker as a first time homebuyer myself. I still don't know who my lender is but we are about three weeks away from closing. I was just assured it was a local bank and not a conglomerate like Bank of America (yuck).

I don't like the idea of PMI but we plan on doing the pay every two weeks (so 13 monthly payments a year vs. 12) and the market is hot in the Boston area so I expect to be up to the 20-22% mark to get rid of PMI in about 3-4 years, assuming it appreciates at the rate I believe it will. I pay an extra $129/mo for the PMI.

I don't think it's awful to put down less than 20% and if you can't swing it then obviously you have no other choice. I floated the idea of FHA loans for awhile until I realized they came with higher interest rates and fees, overall....it just wasn't worth it for the difference of 1.5% down.

The best advice I can give is, don't fall in love with a place as your OP suggests until you have those keys in hand. We had a deal fall through that we were absolutely in love with when we found out the foundation was shifting on a 100+ year old house. You seem smitten with the idea of this house but I'd say, slow down a bit until you know it is absolutely yours. There are parts along the way that can cause issues as well. The one we should ultimately end up with, we had to overbid and then it didn't appraise for that price so we lost closing costs back but at least the seller was willing to come down a few grand, some aren't.

Good luck!

Thanks for the info! Yes, I'm definitely trying to remind myself not to fall in love with it. It' just seriously so great as it's connected to my mom's property, and since she has a farm it's very important to be close by so I can help her with it. We could definitely put down 5% right now, but not much more than that. We weren't really expecting for an amazing opportunity like this to open up RIGHT when we started looking. We did get prequalified earlier though! He put us down as conventional, so I guess I need to look into making up for our lack of down payment. I just discussed it with my mom as well (I'm young and still call my parents for advice ) and she said it's something the realtor will be able to help me determine as well. We are going to check it out this Saturday! Everyone keep their fingers crossed for us!

 

[EdgeOfGlory]

That's my understanding, but it could vary by the type of loan. I know FHA loans are more strict. Essentially, you can use appreciation to justify the loan-to-value ratio for at least five years.

This article here doesn't mention anything about a five year waiting period. But you are right about the FHA vs. conventional differences.

http://www.bankrate.com/finance/mortgages/removing-private-mortgage-insurance.aspx

 

[EdgeOfGlory]

Thanks for the info! Yes, I'm definitely trying to remind myself not to fall in love with it. It' just seriously so great as it's connected to my mom's property, and since she has a farm it's very important to be close by so I can help her with it. We could definitely put down 5% right now, but not much more than that. We weren't really expecting for an amazing opportunity like this to open up RIGHT when we started looking. We did get prequalified earlier though! He put us down as conventional, so I guess I need to look into making up for our lack of down payment. I just discussed it with my mom as well (I'm young and still call my parents for advice ) and she said it's something the realtor will be able to help me determine as well. We are going to check it out this Saturday! Everyone keep their fingers crossed for us!

Definitely go with the conventional loan if you can as most programs are now as low as 5% down vs. 3.5% for the FHA programs. Like I said earlier, fees and rates are higher on the FHA loans so you pay for the added early flexibility of a lower down payment in the long run.

Get that bid in ASAP. It sounds like you possibly know the sellers personally, try to connect with them to show how interested you are in the place. Sometimes, reaching out to sellers can go a long way. Especially, when a bidding war is involved....

http://www.bloomberg.com/news/artic...hout-having-the-most-cash?cmpid=BBD072815_BIZ

 

[supersnoop]

This article here doesn't mention anything about a five year waiting period. But you are right about the FHA vs. conventional differences.

http://www.bankrate.com/finance/mortgages/removing-private-mortgage-insurance.aspx

"Some lenders will consider a new appraisal instead of the original sales price or appraised value when deciding whether you meet the 20 percent equity threshold."
Emphasis on "some." They talk about the "original value" a lot in that article. I'm not sure where exactly I read the 5 year rule; probably somewhere in the finance section at fatwallet.com. That forum, and creditboards.com are great places to learn about mortgages.

 

[lanejudy]

she said it's something the realtor will be able to help me determine as well. We are going to check it out this Saturday!

OP - are you currently working with a realtor? You should have your own representation, whether that is a realtor or a lawyer who specializes in real estate law; or you may need both depending on requirements in your state. You should NOT rely on the seller's realtor to give you the best advice. He/she should inform you right up front that they represent the best interests of the seller and therefore it's a conflict of interest to advise you (the buyer) on much beyond showing you the property and answering some questions. You've mentioned you are lawyer so maybe you know a colleague either in your practice or another one who specializes in real estate.

As to home inspections...even "new" houses can have issues that are found on an inspection. You'll want to have the inspection, if for no other reason than to be informed of what you might need to deal with sooner or later. And while you can try to negotiate some repairs, as a PP mentioned that could be a turn-off for the seller who might go with a similar-but-lower offer without contingencies. Just stuff to keep in mind. There isn't necessarily a right or wrong answer, but be knowledgeable about the transaction you are entering into.

Good luck!

 

[disneyfab]

FHA and VA loans make it extremely tough to find a home unless the home is perfect, and by perfect I do mean PERFECT. There can be nothing wrong with it in any way shape or form except needing new paint colors, not even worn carpet or a crappy stove. Plus FHA and VA loans require that if putting down less than 20% you must carry PMI which NEVER goes away. They also carry a higher base interest rate than traditional loans.

Just wanted to note that a VA loan does not require PMI. The VA is the guarantee for the loan. We are on our 2nd VA loan and have never paid PMI. Also, VA loan rates typically slightly lower. IIRC, our last loan was at least .5% less than other comparable options. With interest rates being so low, the difference was much smaller than our first VA loan which was a little more than 1% less than other options.

If you're eligible, a VA loan can be a good option. We were told by our realtors that some sellers won't work with VA loan financing, but we didn't run into any issues with inspections or making offers. But, we were purchasing fairly newer construction homes. For us, we had the option of no down payment/rolling fees & cost into our mortgage, low interest rates, no PMI and reduced origination fee (dh is a disabled veteran).

Like others have said, I would suggest pre-qualifying. This can give you a more accurate picture of cost. Also, review the current taxes paid and utility cost if your local utility company offers this.

Home inspection is a must. Although we had the VA inspection, it is fairly basic. We paid for an independent inspection each time we have purchased a home. We also made our offers contingent on the inspection.

Also, I agree that you should have your own realtor as well. They will have useful knowledge to you as a seller and be a wealth of info.

 

[GaryDis]

You want to get Pre APPROVED, not pre qualified.

You are correct, and I erred in saying prequal earlier. Which just goes to show how long it's been since I've been through this process.

 

[DisneyMandC]

Hello all, update! We went over and checked out the property today and made an offer!! The house needs some work, but we brought my brother with us who builds log cabins for a living and he was able to easily identify the issues it had and quote us on what it would be to fix it. Stuff that NEEDED to be fixed were minor, easy fixes. We would want to make some cosmetic changes as well (knock out a wall and have an open floor plan upstairs) and he was able to quote us for that as well, check loadbearing walls, etc. The property itself is GORGEOUS. And as I think I previously mentioned, the property backs right up to my mom's farm currently, which is a big, big bonus for us.

For those asking, we do not have a realtor, but in addition to building homes, my brother also flips houses, so he was able to assist in asking a lot of the questions we wouldn't think to ask, talk offers, etc. We do have a friend of mine, fellow attorney, who will be our settlement agent if everything goes as planned. She also recently purchased her own house, so plenty of experience there!

Thank you all for all of your input on FHA v. conventional, etc! We are definitely taking all of that into consideration and trying to figure out what would be our best option based on our current ability to put down money, plus any gifts from family. I think at this point we will definitely be going conventional, just need to determine what we can put down. Thank you all, we will definitely keep you updated! DH and I both came up with the number for our offer today separately, my mom said the same number, and then my brother said the same number. So I feel like we put in a good offer, and if (and when) they counter with a higher number, it's still something that we could do even with our plans to make some changes.